Hidden Budget Measures That Could Impact Britons Abroad

A key measure announced in the Budget is the removal of the deeming tax credit on UK dividend income for non-residents. This will apply from April 2026. 

The change may appear technical, but it has practical effects for many expatriates who continue to receive dividends from UK companies. 

Non-residents currently have two ways to calculate their UK tax: 

1. Include all UK taxable income and keep the UK personal allowance. 

1. Give up the personal allowance and use the disregarded income rules, which allow certain types of income to be excluded from the calculation. Dividend income is one of the types of income that can be disregarded. 

These rules are not being abolished. However, for non-residents who choose not to use the disregarded income method, the removal of the deeming tax credit will increase the amount of tax due on UK dividends. 

This is especially relevant for individuals who also receive UK rental income and therefore rely on the personal allowance to reduce their taxable income. 

As a result, the removal of the credit may push some expatriates into a less favourable tax position. 

Clients who hold shares in UK companies, whether private or listed, may need to reassess whether those holdings continue to support the outcome they expect. 

The change does not alter the overall tax structure for non-residents, but it alters the financial outcome for many who previously relied on the credit. 

For clients living abroad, the decision about whether to continue holding UK based shares now requires a fresh analysis. 

In some cases, it may remain appropriate to hold these assets. In other cases, it may be more efficient to adjust the structure of investments or consider alternative jurisdictions. 

The right answer will depend on the client’s full cross border position.

The Budget also confirmed significant changes to the temporary non-resident rules.  

These rules apply when a person leaves the UK and becomes non-resident but then returns within a period of fewer than five complete UK tax years. Their purpose is to prevent individuals from becoming non-resident for a short period to avoid UK tax. 

Currently, the rules apply only to profits that were generated before the individual left the UK. If those profits were held within a company and later paid out as dividends while the individual was abroad, the UK could tax those dividends if the person returned within five years. 

Profits generated after an individual leaves the UK are currently not affected. These profits are known as post departure trading profits. This has allowed genuine expatriates to receive dividends from new business activity without creating future UK liabilities provided they complied with all other rules. 

From April 2026, this distinction will no longer exist. The temporary non-resident rules will begin to apply to both pre departure and post departure profits. This means that if a client receives dividends from a company that continues to trade after they leave the UK and they later return to the UK within five years, those dividends may become taxable on their return. 

For clients living abroad, this creates two important planning considerations. First, remuneration structures may need to be reviewed. Some clients may find that salary or bonus arrangements become more appropriate than dividends. Second, long term residency intentions should be considered carefully. Many clients do not plan on returning to the UK at the time they leave but life circumstances often change. An unplanned return within five years could create significant and unexpected liabilities. 

It is therefore advisable for clients who own or are connected with a company in the UK or abroad to review their position now rather than waiting for the rule changes to take effect. 

The Budget also confirmed a new property related measure that will affect many expatriates who continue to own UK real estate. From April 2028, the government will introduce a high value property surcharge which is widely referred to as the Mansion Tax. 

The surcharge applies to properties valued at £2 million or more. Key details include: 

• Properties valued between £2 million and £2.5 million will incur an annual surcharge of £2,500. 

• Properties valued at £5 million or more will incur an annual surcharge of £7,500. 

• The tax applies to ownership rather than occupation. 

For clients living abroad, this is particularly relevant. Many expatriates let out their UK property while living overseas. The new surcharge will apply to them even though they no longer live in the UK. 

For landlords, this will increase the annual cost of property ownership. For clients who keep their property empty for personal reasons, the cost will still apply. 

In addition to the surcharge, property income tax rates will rise by two percentage points from April 2027. The basic rate will increase to 22%, the higher rate to 42% and the additional rate to 47%. 

These changes will reduce the net return many expatriates receive from their UK property holdings. As a result, clients may need to review the long-term purpose of the property within their wealth strategy. 

In some cases, the property will remain an appropriate asset. In others the new tax profile may point to a different approach. 

Each measure described above will affect a different group of expatriates, but the combined effect is important. 

The UK has made several adjustments that increase the complexity and potential tax cost of holding UK based income, property or company interests while living abroad. 

Clients should not assume that past outcomes will continue unchanged. Even if your circumstances are stable, the rules that apply to those circumstances are shifting.  

Decisions that were tax efficient in previous years may no longer produce the same outcome in the years ahead. 

For clients living abroad the key themes are clear: 

• UK dividend income may become more expensive from April 2026. 

• Company profits generated after leaving the UK may become taxable if you return within five years. 

• High value UK property will carry new annual charges and higher income tax rates. 

• The interaction between UK tax rules and the tax regime in your new country of residence remains essential to effective planning. 

Given the long timelines before these rules take effect, clients have an opportunity to act early. We recommend the following steps: 

• Review UK shareholdings and the impact of the removal of the deeming tax credit. 

• Review company ownership structures and future remuneration plans in light of the expanded temporary non-resident rules. 

• Assess UK property assets to determine whether they remain aligned with your long-term goals once the Mansion Tax and increased income tax rates apply. 

• Consider the likelihood of returning to the UK within five years. 

• Ensure all planning is assessed against the tax rules of your country of residence. 

We are available to support clients in evaluating how these measures may affect their financial arrangements and to help determine whether adjustments are suitable. 

Book a consultation or speak to your Hoxton Wealth adviser today.